CPT codes and healthcare reimbursement rate calculations

¶ … Policy Changes in Healthcare Finance

Healthcare Finance

CPT Codes

The American Medical Association (2013) developed the Current Procedure Terminology (CPT) codes decades ago in the 1960s. The first edition was published in 1966 and over the subsequent years several updated versions were created. The reasons for developing the CPT code system was to make communications about medical procedures easier between health care providers, help patients and their doctors submit claims for services to insurance providers, create a structure that would facilitate the development of an electronics records system, and create categories that would help researchers collect data on the health care field.

The CPT code system expanded with each subsequent edition and with publication of the second edition the codes were transitioned from a 4 to a 5 digit system (American Medical Association, 2013). This transition was necessary as the services covered by the code expanded beyond medicine, radiology, and laboratory tests to include diagnostic procedures and treatments. By 1983, the Centers for Medicare and Medicaid Services (CMS) adopted the CPT code system and Congress enacted legislation mandating the use of the CPT code system for both inpatient and outpatient services the following year. Since then, the CPT coding system has become the primary system used by medical services in the U.S.

The reimbursement rates for each CPT code are calculated using a formula that includes a number of different factors (ACRO, n.d.). The "Work RVU" represents the contribution made by the physician(s) to the procedure in terms of time expended and the skills and training required to complete the procedure. "RVU" stands for relative value units. Work RVUs used by Medicare are supposed to be reviewed every five years to ensure physicians are adequately compensated and patients are not being overcharged. Higher RVU values represent more time and/or skills to accomplish a procedure and thus a higher reimbursement rate.

Practice Expense RVU (PE RVU) represents the overhead that can be attributed to providing the coded medical service (ACRO, n.d.). These costs include rent, support staff, equipment purchases and maintenance, consumables, and other services essential to operating a clinic. These costs are broken down into 'direct' and 'indirect' costs, with the former representing costs associated with nursing staff, consumables, and equipment, while the latter represents things such as rent and billing services.

The PE RVU subcategories are important because it explains why there is such a big difference in the reimbursement rates for procedures provided by facilities or non-facilities (ACRO, n.d.). Facilities are considered hospitals, while non-facilities would be a doctor's office or specialty clinic. Essentially, the expenses incurred when maintaining a free-standing clinic, apart from a hospital, are entirely reimbursed through the CPT code system. By comparison, the overhead expenses that hospitals incur for providing the same expenses are recovered through Medicare under the Hospital Outpatient Prospective Payment System (HOPPS/OPPS). In other words, when a doctor provides a medical service in his or her office the reimbursement rate reflects the fact that the doctor is responsible for having the needed support staff, exam room, billing service, and consumables (National Health Policy Forum, 2009). Should a physician provide the same service in a hospital clinic, the hospital is financially responsible for the support staff, equipment, exam room, and consumables and is reimbursed under HOPPS/OPPS.

The other factors that contribute to reimbursement rate calculations are Malpractice RVU (MP RVU), Geographic Practice Cost Indices (GPCI), and Conversion Factor (CF) (ACRO, n.d.). The MP RVU is self explanatory and the GPCI represents differences in physician work, expenses, and malpractice insurance based on geographic location. The CF simply converts the RVU into a dollar amount; however, the CF also incorporates a congressionally-mandated budget constraint that limits how much Medicare can spend each year. This spending limit, as implemented, is called budget neutrality. The formulas for calculating non-facility and facility reimbursements are as follows:

1. [(Work RVU * Work GPCI) + (non-facility PE RVU * PE GPCI) + (MP RVU * MP GPCI)]

2. [(Work RVU * Work GPCI) + (facility PE RVU * PE GPCI) + (MP RVU * MP GPCI)]

Part III: MS-DRG System

The Deficit Reduction Act (DRA) of 2005 contained provisions mandating a shift of focus for Medicare and Medicaid reimbursement toward improving the quality of the healthcare services (McNutt et al., 2010). This was addressed in part by implementing Medicare severity diagnosis-related groups (MS-DRGs) and 'present on admission' (POA) codes. The POA codes are used to document any conditions a patient may have when admitted to inpatient care so that hospital acquired conditions (HACs) can be more readily identified. Should a HAC occur, then the CMS reimbursement level for HAC diagnosis and treatment is reduced compared to reimbursement levels for the same condition identified as POA. The intended effect is to penalize hospitals for providing substandard care. HAC metadata for any given hospital can then be used to assess institutional performance.

The MS-DRG classification system allows hospitals to document the severity of conditions a patient presents with in admissions (Editors, 2007). There are three levels of severity that can be assigned, from most to least severe. At the severe end of the scale a patient can be classified as having a major complication and/or comorbidity (MCC). The category for less severely ill patients with a complication and/or comorbidity is CC and finally the least ill patients have no MCC or CC. There are 750 MS-DRGs and most allow documentation of disease severity, but 40 do not. For example, MS-DRG 192 codes for chronic obstructive pulmonary disorder (COPD) without a CC or MCC and the reimbursement rate was $4,480 in 2008. The reimbursement rate for COPD with a CC (MS-DRG 191) was $5,173 and with MCC (MS-DRG 190) $6,127. These differences in reimbursement levels are intended to create an incentive to accurately document the severity of patient illness during the admissions process and reduce the practice of subsidizing treatment of severely ill patients with the profits made from treating less ill patients (Altman, 2012).

A natural result of implementing the PAO and MS-DRG coding systems is researchers becoming interested in whether this system is effective in achieving the intended goals. Brinjikji and colleagues (2012) examined the costs and reimbursement rates of 20% of all patients admitted with a subarachnoid hemorrhage (ICD-9 430) to non-federal hospitals in 2008. The procedures performed were aneurysm clipping (ECD-9-39.51) or coiling (ICD-9-39.52); along with repair and occlusion of head vessels (ICD-9-39.72) and other endovascular repair (ICD-9-39.79). Of the 10,422 discharges included in the study 56.3% underwent the coiling procedure and the rest clipping. The median costs for clipped and coiled patients were $69,353 and $66,290, respectively. The Medicare reimbursement schedule for endovascular intracranial procedures and craniotomy were $30,380, $36,543, and $41,748 for patients with no complications or comorbidities (MS-DRG 22), with CC (MS-DRG 21), or with MCC (MS-DRG 20), respectively. Given this data, it quickly becomes clear that even if all patients suffering from a subarachnoid hemorrhage were coded as MCC the hospitals would still be losing money.

The other problem with the MS-DRG system is that it is not responsive to other major determinants of cost. Brinjikji and colleagues (2012) discovered a large difference in costs for treating subarachnoid hemorrhages depending on whether the patient was younger or older than 65 years of age. The difference was $65,751 versus $90,745 for clipped patients and $64,252 versus $74,918 for coiled patients. In addition, between 2001 and 2008 the costs for these procedures increased at an annual rate of about 5-6%. Implementing the MS-DRG code system may represent a step in the right direction, but much more needs to be done, including adjusting for age and inflation. Only then will hospitals come closer to ending the practice of subsidizing the care provided to severely ill patients with profits made from treating everyone else.